Olam CEO Says Takeover Is 'Technically Possible'

Sri Jegarajah | Reporter, CNBC Asia Pacific

Wednesday, 28 Nov 2012 | 10:45 PM ETCNBC.com

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A takeover of Singapore listed agribusiness firm Olam International – which is fending off attacks on its accounting methods and questions over its debt from short-seller Muddy Waters – is "technically possible," CEO Sunny Verghese told CNBC on Thursday.

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"While technically, a takeover of Olam is possible, in a real practical sense...a hostile takeover is unlikely," Verghese told 'The Call' in an exclusive interview. Still, "this attack has put pressure on our various stakeholders, whether the bond holders or whether it is shareholders. We are delighted and grateful that they are by and large standing by us."

Hostile takeovers rarely succeed in the agribusiness industry "because mostly it is about the people running those businesses, proprietary insights and knowledge and the relationships that they have," Verghese explained. Takeovers have tended to be on a friendly "not on a hostile basis."

Merger negotiations with Olam were announced in September 2010 as global commodity group Louis Dreyfus sought a strategic direction after chief executive Robert Louis-Dreyfus died in 2009. A deal could have resulted in a firm with combined revenues of over $43 billion had they been successful, Reuters reported. Dreyfus has been reported to have held merger talks with other rivals, including Swiss-based Glencore International.

But Louis Dreyfus abandoned merger talks with Olam in February 2011. "We parted amicably, and we will continue to pursue our independent futures," Olam's Verghese said at the time.

'In Concert'

Olam, 16 percent owned by Singapore state investor Temasek Holdings, said in a 45-page report on Wednesday it was not at risk of insolvency and had enough liquidity to pursue its business and future investments.

Olam's report aimed to rebut major issues raised by Muddy Waters in its own report issued the day before, which looked at Olam's solvency, accounting-related assertions, business model, acquisitions and capital spending.

Separately, Verghese reiterated his belief that Muddy Waters was acting "in concert" with "a group of hedge funds" to attack the company. "Muddy Waters is only one piece in the puzzle."

Asked about the outright level of short positions, or bearish bets, against the company's stock, Verghese said some of those holders may have exited their positions though the number remains at "a very high level." Verghese said last week that his company has been the most shorted stock in Singapore this year.

He added: "We keep a close watch on this and tomorrow we will get another report on what the closing position this week has been. You won't get an exact number but, you'll get a fair sense on what the short position on Olam is. We feel that it has gone down a little bit, but there's still a high level of shorts in the company."

Verghese confirmed all the company's banks continue to extend credit lines to the business.